WHOLE FOODS MARKET

Whole Foods Market

Whole Foods Market

Discuss trends in retailing of organic foods and impact of these trends o Whole Foods Market.

Whole Foods Market made the number of cost-cutting moves last summer, including laying off about 100 employees at its corporate headquarters in Austin, Texas, in hope that in face of reduced sales it could stem its loses. It's likely that without those cost-reductions natural and organic foods grocer would have shown poorer Q1 results.Whole Foods-Wild Oats represents the monopoly in 29 U.S. markets, in what regulator calls "premium natural and organic retailing segment (PNOS),"we strongly suggest this $11 million expense was an unnecessary one for Whole Foods. Because of serious challenges Whole Foods is facing due in large part to bad economy, along with increased competition from other natural foods class of trade retailers, supermarket chains moving increasingly into natural and organic products space, and discounters like Wal-Mart, Costco, Target, Trader Joe's and others, it could have used that $11 million for promotional and other merchandising purposes rather than having to spend it on legal counsel.

Evaluate competitive environment of firm: Apply porter's model and analyze each factor relative to company.

Rivalry among Existing Firms

The range of competitors within overall industry include chain and independent supermarkets (Krogers, Safeway, others); mass merchandisers and super centers (Wal-mart, Target); convenience stores; wholesale clubs (Sam's); restaurants and fast food chains (who compete for consumer food dollars); natural food stores (Whole Foods, Wild Oats); local farmers' markets, and internet grocers. Historically, concentration of competitors has been fragmented by geography. This trend may actually help alleviate some of price competition in industry that was previously driven by small, highly fragmented competitors.

2. Threat of Substitutes

The relative price of substitutes plays the role in determining the company's profitability.

Organic food is priced at the premium to conventional food reflecting high labor costs in

Another reason is that consumers either lack education about its benefits (or don't care) so that price premium does not appear to be justified. However, when comparing upscale organic and prepared foods to competitors such as restaurants, benefit/cost ratio appears more justified.

3. Buyer Power

The retail grocery market is typically considered somewhat resistant to economic downturns, thus, to some degree; consumers' food budgets are pricing sensitive. However, there is risk that consumers will switch from high quality / high margin stores to mass merchandisers (Wal-Mart, Shop N Save) to stretch declining incomes further in the downturn market.

4. Supplier Power

The organic food suppliers are not highly concentrated, so natural food retailers have some power over them. Also, natural food retailers may have ability to backward integrate with partnerships and joint ventures with local growers. In addition, there is the trend for top conventional food manufacturers to invest in national/organic food companies (examples include HJ Heinz, Kellogg, and Kraft & General Mills).

5. Threat of New Entry

Because retail grocery market is typically low margin, it is critical for companies to have some type of cost advantage over peers. Product costs typically range from 70% to 73% of ...